AN OUTSIDE VIEW

Give us this day... , originally uploaded by Mr. Kris . Sharply rising food prices are making politicians sit up and do something. But what? Pegging prices is one option but this alone does nothing to address the underlying problem. On the contrary, it is a disincentive to produce food and bring it to where it is most needed. But when people are poor and have insufficient purchasing power, what else can be done. It is said that third world farmers are too poor to purchase seeds. On the face of things, this is strange. Presumably they have got a good price for selling the crops they have just harvested, especially if food is in short supply, as is claimed. Or perhaps the farmers have got a bad price and someone else is cashing in. The temptation is to blame greedy middlemen, but they make nothing unless they both buy and sell, and in selling where they will get the best price, they are channelling the food to where there is most demand. Which may not be the same thing as whe...

WPP, the British media group, is considering moving its tax domicile to the Republic of Ireland, which has a much friendlier corporate tax regime. Sir Martin Sorrell, WPP’s founder and chief executive, said that the move could cut the group’s £200 million tax bill by tens of millions of pounds a year. In an attempt to prevent more of this kind of thing, the Chancellor, Alistair Darling, has announced the creation of a task force, with executives from the private sector, aimed at keeping the UK’s corporate tax regime competitive. The move comes after the introduction of tax measures that, critics claimed, detracted from London’s place as the pre-eminent location for business. Darling said that the working group would have a remit to ensure that competitiveness remained at the heart of any future reforms to the tax system. “I am determined that we do what is necessary to remain one of the world’s best places to do business, and, critically, to ensure that we maintain our strong and resi...

I was disappointed, though not surprised, to read that the European Court of Human rights had turned down the bid by two sisters living together, for equal inheritance tax treatment as a same-sex couple living together. Since their property was said to be worth about £800,000 the one sister who outlives the other is not going to be in penury. But that is beside the point. There are aspects of Inheritance Tax which are unjust. Apart from the fact that the seriously wealthy can avoid paying, through the use of various financial and legal devices, the tax fails to distinguish between that part of an estate which has been built up through hard work and that which is merely a growth in land value. A work of art, for instance, may not even have been valuable when first acquired. It may have been created by the deceased. If, subsequently, it becomes valuable, its possession does not enable the owner to earn any revenue from it, unless, perhaps, by charging people to look at it. And so a tax o...

Mervyn King, Governor of the Bank of England, has criticised banks for having caused the present credit problems, blaming it on a culture of greed and recklessness. He in turn has been criticised for letting down the City with these comments, which were described as "unhelpful". First and foremost, it is better for the City of London's reputation if mistakes are acknowledged. But whilst the conduct of the bankers is the immediate cause of the current problems, underlying these is the set of circumstances in which such conduct is seemingly worthwhile, at least in the short term. In an electrical or engineering system, positive feedback loops lead to runaway conditions and consequent instability. The banking system interacts with the land market in precisely the same cyclic way, but on the rising phase of the cycle, all seems to be going well and there is nothing to indicate that there could be trouble ahead. In other words, there is no feedback other than the occasional ...

I sold my old Apple Mac yesterday. I was sorry to see it go as it is likely to become a classic collectors' piece, but I had stopped using it and havn't got the space. I had only a vague idea what it was worth. When they were new they were around £1,200. I got it for £300 and must have spent another £150 on memory and things, so at £190, I was only getting back less than half my money back. In a few years' time it could be worth a lot more. So what was it really worth? That is easily answered. At the time and place it was sold for, its value was the price at which the exchange actually took place. Now this has an important bearing on the study of economics in a broader context, since the concepts of wealth and value are key. Yet, seemingly, there are no set and agreed definitions, which could explain why economic problems are seemingly intractable. The other day I turned up a book which examined the matter, and included a summary of what the nineteenth century American econ...

A radio programme this morning mentioned how much interest in politics has shifted onto personalities. And it was suggested that the reason is that the political parties have policies that are very similar. This is probably true. It is shocking. Considering the range of problems we are faced with and the fact that we are entering a period of economic and social instability, there is a desperate need for penetrating and original thinking if the country is to survive in good shape.

There is another crop of letters in the newspapers today, complaining about the loss of the 10p income tax band. Of course most of them miss the point, which is that the 0p band should be extended so that nobody earning less than the mininum wage has to pay income tax at all. And looking more deeply into the subject, it is necessary to understand that income tax is nothing more than a system of perverse incentives - a structure of penalties for working rather than doing nothing. This results in an ongoing annual loss to the UK economy of over £140 billion, to which must be added the running cost of £25 billion. We cannot afford this kind of nonsense, especially since government spending actually needs to rise to pay for people's increasing expectations of public service. Public debate on tax is almost always confined to how much. Attention needs to shift to a consideration of what is taxed and how.

karl marx grave at highgate cemetery , originally uploaded by atharabidi . I was talking to a young man after Mass this morning, Catholic, who astonished me with his statement that Marx had things right. Marx certainly had insights which remain of value, but his economics in particular was completely screwy, which has a considerable bearing on why Marxist economies never worked. The theory is fatally flawed in its fundamentals. Most seriously, it regards land as a species of capital. But Land is sui generis. Both land and capital need to be carefully defined before attempting to analyse economic concepts and trying to form a coherent theory of economic relationships. Amongst the mischief done here is that it diverts attention away from the peculiarly privileged position of land owners in the economy through the mechanism of land monopoly. The second fatal flaw is Marx's Theory of Value. This says that value comes from labour, and that value is a kind of "congealed labo...

Linlithgow Palace Jousting Tournament Finale , originally uploaded by Disco Dave . The term laissez faire was first used in relation to economics by the French Phyiocrats Quesnay and Turgot in the eighteenth century, when they used the motto "laissez faire, laissez allez" to describe the principles they advocated. This is said to have come from the cry used in medieval tournaments to give the signal for combat; the equivalent in English is "a fair field and no favours". The Physiocrats believed in freedom of opinion, freedom of the individual and freedom of exchange, and the last of these freedoms, they argued, could only be achieved in the absence of government intervention. Physiocrats, however, also pointed out the need to abolish all taxes except a tax on the value of land; this is implicit in the concept of freedom of exchange. It is unfortunate that this aspect of laissez faire has been almost totally ignored by both its advocates and its attackers. Th...

In a recent report, Nima Sanandaji of the Captus think tank suggests that Sweden should look to the United States as an example in order to cut welfare dependency. In the UK, attempts to combat welfare dependency have consistently failed. It is an inevitable consequence of the arithmetic of the system. However, the muddle over the 10p tax band suggests that the arithmetical competence of British politicians is shaky. Perhaps it is better in Sweden but who knows? In Britain, the principle is that benefits are targeted. Consequently, people who fall into the target area, for example through sickness or loss of job, will tend to stay there. The difficulty is that benefits have to be set high enough to enable people to survive at at least a minimal standard, but to receive that same amount in take-home pay incurs an employer in a substantially higher total labour cost. It is simple arithmetic. Typically, every £1 an employee receives in real net purchasing power costs an employer over £1.8...

Intercity , originally uploaded by kpmarek . Irish Railways has put up 120 of these mark 3 coaches for sale. They are not quite identical to the British ones. The Irish gauge is wider than that in the UK, 5ft 3in instead of 4ft 8 1/2 in, which means that the bogies would need to be re-gauged or possibly replaced. The carriages also have the advantage of plug doors as fitted to the Bournemouth line class 442 stock. The electrical system is different from the British vehicles, being supplied from generator vehicles which are included in each train set. This latter feature could prove useful as it would enable any form of traction to be used, such as, for instance, class 66 freight locomotives, without loss of the air conditioning and other on-train services; the vehicles could even operate with steam haulage and for this reason could be of interest to charter companies. Provided that too many seats are not crammed in (not more than about 70), these are pleasant and comfortable vehi...

England flag at Fan Fest Berlin , originally uploaded by WorldCupBlog.org . With the increase in Scottish and Welsh autonomy, it is inevitable that there will be stronger assertions of English identity, manifested, for instance, in the flying of the flag. I have difficulties with this. I was not born in England but in Scotland, and spent some of my formative years there. I have no English ancestry. Not being interested in spectator sports, I do not identify with English nationalism as it is exhibited by football fans and the like. I don't feel it is anything whatsoever to do with me. It leaves me feeling negative. It is unfortunate too, that English emblems have been hijacked by the political right. There are many values I regard as British that I feel able to take a pride in, but I have never thought of these as peculiarly English. Whether the best of English values can be reclaimed remains to be seen but the task has to be done if many of the country's inhabitants are not t...

It would be astonishing if the then Chancellor, Gordon Brown, actually intended that low paid workers should end up paying more as the result of abolishing the 10p tax band. And his successor, Alistair Darling should have picked up the potential problem as soon as he took over. Which makes things all the worse. It would have been the simplest matter to test out the effects of the change on a spreadsheet. The Chancellor presumably did not think of asking his Treasury advisers to do so, and, probably that those advisers failed to suggest that the figures be checked out - unless Darling routinely ignores them. However this has come about, there is gross incompetence at the highest levels and the Chancellor, and possibly some of the Senior Treasury staff, should be sacked. The most important financial decisions affection the country cannot be left in the hands of people who are numerically illiterate.

Aren't those who are criticising the Chancellor for abolishing the 10p tax rate attacking the wrong target? The 10p tax rate never did make sense - it is probably more trouble than the amount collected is worth. Tax allowances should at least equate to what someone on the statutory minimum wage can earn in a 40 hour week. This might mean a higher tax basic rate once the new threshold was reached, but very low earners would end up paying no income tax at all, and the majority would pay about the same in total. But the underlying problem is that Income Tax in practice is a soak-the-poor system. It is also a very expensive one, with annual running costs of around £25 billion and causing a astonishing annual deadweight loss to the UK economy estimated at £138 billion - this being the value of production that would otherwise occur were it not for the disincentive effect of the tax system itself. [ http://www.iea.org.uk/record .jsp?ID=320&type=news ] The present tax system evolved 60...

I found this letter of mine by accident - it was published in the Observer on Sunday September 12 1999. "The article on property prices (News, last week) talks about a house price boom. It is, of course, a land price boom. The value of the bricks and mortar hardly changes. Nobody has been asked to increase the value of their fire insurance cover as a result of this boom, which is purely a feature of the current phase of the land market. Like every previous land price boom, this one will end in a crash." It took nine years in the end, but until a few months ago all the pundits were forecasting a "soft landing".

UK - London - The City: Bank of England and First World War Memorial , originally uploaded by wallyg . The Bank of England's £50 billion bail out has been made to sound as if the tax payers will be protected from loss since the value of the mortgage debts will be discounted in the exchange for government bonds - the so-called haircut. But the aim remains that of pumping more money into the banking system so that mortgage lending can get going again. But it is an excessive supply of money which has pumped up housing [housing land] prices in the first place. These prices need to be allowed to come down to realistic figures. But what is a realistic figure? Something like the market rental value divided by the market rate of interest, expressed as a fraction. Since market interest rates are around 6%, capital values should be about 17 times annual rentals. On that basis, a house let for say, £1500 a month should be worth about £310,000, but at the top of the market such a house w...

The government is now coming under attack for abolishing the 10p income tax rate. It turns out that a significant number of low paid workers will end up worse off under the change. How the proposal get this far? I wonder if it is no more than an effect of mathematical illiteracy. Did nobody test the effects of the suggested changes on a spreadsheet? Really, the 10p tax rate never did make sense - it is probably more trouble than the amount collected is worth. Tax allowances should equate to what someone on the statutory minimum wage can earn in a 40 hour week. But this would mean higher tax rates once the threshold was reached. Most low paid workers would still end up with about the same, but middle England would be annoyed and the focus groups must be heeded. The underlying problem, however, is that, from any point of view, the taxation of wages is a thoroughly bad method of raising public revenue.

This is one of those subjects the right-wing tabloids like to run. "People pretending to be sick living at the expense of hard-working families" is the line taken. But as an article in the FT magazine explained, the figures will not stack up. Many, possibly most, of the people on Incapacity Benefit are capable of doing some kind of work. But most of them are genuinely in ill health, sometimes intermittently, and the the whole structure of the benefits system makes them reluctant to look for work because if their health deteriorated, they would have to go through the whole business of having to apply for the benefit again. Scrutiny of those on Incapacity Benefit may well result in getting the claimants onto the Jobseekers' Allowance instead, especially if, as has apparently happened, people capable of turning up on time for their medical examination are deemed fit for work! But what happens then? There were 678,000 job vacancies in Britain in February and 795,000 on the J...

, originally uploaded by MuhammadSarwar . What became of common sense? I read yesterday about two men being prosecuted for teasing a dophin in Folkestone harbour. Personally, I think the men were being stupid, but if the dolphin did not like it, the animal would either have given the men a hard and painful shove with its beak or else swum off. The dolphin was in charge of the situation and must have thought it was a bit of fun and gone along with the game. Who was it in the Crown Prosecution Service that decided this was a case worth pursuing? Is there a shortage of genuine crimes to be dealt with?

National differences count. A new survey shows that people in Sweden are willing to accept higher taxes to finance it. According to a study commissioned by the Swedish Association of Local Authorities and Regions (SALAR), 90 percent of Swedes prefer high-quality social welfare over lower taxes. And nearly as many Swedes, around 80 percent, are willing to pay higher taxes for better healthcare, schools, and care for the elderly. “It shows that there is great confidence in our sector’s work,” said Anette Åkesson of SALAR’s welfare financing committee, in a statement. “At the same time, we’re facing a situation where fewer are paying for more services, and where expectations for welfare services continue to increase steadily. That means that we must raise taxes by an excessive amount if we don’t find alternative and complimentary financing options,” she added. SALAR expects Sweden’s population to add 870,000 residents by 2030, of which only 75,000 will be active in the workforce. With hig...

Gordon Brown may not be to blame for all that has gone wrong with the economy over the past nine months, because things would have been little different, whoever was in power and the same problem has occurred in many countries. But the government's handling of the situation is certainly going to make matters worse. The latest proposal is to swap mortgage debt for government bonds. This will leave the taxpayer with the losses if things go wrong. But they definitely will go wrong, because the economy is slowing, defaults will increase, the bottom will fall out of the housing (in reality, land) market and the collateral for this mortgage debt will not be worth its present book value. Which will mean that the government will end up having to print money to cover it all - in other words, we will get severe inflation, on top of the inevitable severe recession. If the government leaves the private sector to suffer the consequences of its own stupidity, at least the inflation can be avoide...

Yesterday's Daily Express ran its front page on the idea that Gordon Brown was to blame for the unfolding financial disaster. It is convenient to look for a scapegoat, but the crash of 1992l took place under the Conservatives and there is no reason to believe that things would have been different under any conceivable UK government. So in a sense it is stupid to blame the former Chancellor. He just happened to be occupying 11 Downing Street during the period in question. At the root of the problem is the defective economic theory which guides politicians and their advisors and gives them no plausible means of accounting for economic cycles. Accepted economic theory has no room for the idea that these cycles might be due to the interaction between the land market and the banking system. So the danger was never forecast. Since there was no explanatory mechanism, nobody had the foggiest idea how the collapse might be forestalled. There is also the role played by a lot of other people....

This LMS class 5 seems to be getting away from a stop at Nuneaton station with remarkable acceleration, and with 8 mark 2 coaches - around 280 tons - and in the rain as well, so the track would have been slippery. I wonder if the driver is usually on Voyagers, thought he would try the same thing with the steam locomotive, and found that he could. These machines can deliver much more than their rated power for short periods which is why they can get a train away from a station so quickly. The boiler serves as an energy reservoir. Bearing in mind that a steam locomotive can be run on anything that will burn, isn't the time approaching when they should be bringing them back into service?

The Conservative shadow chancellor, George Osborne, has proposed that the banking crisis should be solved by swapping the bad debt for government bonds. This leaves the taxpayer with the risk. I would have thought that ideas like this would have emanated from the interventionist left. It does not give any confidence in anyone's ability to sort things out. If that is the best that opposition politicians can come up with, my advice is to flee the country and take all your money with you. It is not safe in the hands of idiots who do not know what they are doing.

Faith in Gordon Brown, on the other hand, has slumped, according to the figures. Why the man wanted to become Prime Minister after ten years living next door as Chancellor of the Exchequer is a mystery. Now he has got the coveted fruit it has turned bitter for him. It is strange that as Chancellor, he did not see the storm clouds brewing and make a dash for the House of Lords. That at least would have been a way of ducking the opprobrium which he has deserved and is now heaped upon him. For most of his term as Chancellor he was in the lucky phase of the economic cycle and could quite unjustly take the credit. Now he is being made to take the blame. But at this stage of the cycle there is bound to be pain and no Chancellor could do better - the only question is how to manage the pain - a task which they look as if they will do in a way so as to spread it around as much as possible. The boom and bust were indeed avoidable but the time to have taken action would have been within a couple ...

Hocus Pocus , originally uploaded by seadipper . Tony Blair, newly received into the Catholic Church, is considered a great catch by some. He has set up an organisation called the "Faith Foundation" and gave a talk about it recently in Westminster Cathedral. The idea is that people of all faiths should be able to get along nicely together. I like this idea of abstract faith. It is completely inclusive. You can have faith in bags of stones and feathers, trolls, chicken's entrails, Wicca, the Man in the Moon, the Duke of Edinburgh, lumps of stone, the US $. The possibilities are endless. What diversity shall we enjoy and how well shall we all get along together in a spirit of mutual understanding! Only somehow I think the main beneficiary will be the one depicted with horns and a spiked tail.

The reasons for rising food prices need to be clarified. One cause is that land which could be used to grow food is being used to grow crops for conversion into transport fuels. The other is that food that people could eat is being fed to animals for meat production. Put plainly, to move around by sitting in a vehicle that weighs the best part of a ton is an evolutionary dead end. The only viable and sustainable form of individual personal transport is human powered. Now that people in India and China are getting into cars, this plain fact will quickly become apparent. If we want to travel at more than bicycle speeds, it can only be done by collective transport such as bus, train, tram or boat. And even then, speeds will have to be limited to an optimum figure. High speed trains will be out of the question and unnecessary anyway, as the competition from cars and aircraft will have largely dropped out. Seeing that Adolf Hitler was a strict vegetarian, I am suspicious of over-zealous adv...

A letter from a US academic published in the FT a few days ago suggested that the Scandinavian model of the economy had features worth emulating, in particular, the greater participation by the governments in those countries. People often look to Scandinavia as a social, political and economic exemplar and argue that Scandinavian practices should be adopted elsewhere. This suggests a lack of knowledge and understanding of that part of the world, by which, presumably, they mean Norway, Denmark, Sweden and Finland. In the first place, the four countries are very different, having had different histories. The whole region is insignificant in terms of population; to put this in perspective, there are probably nearly as many people living inside the M25. All of the countries were late to industrialise, at the end of the nineteenth century, and effectively avoided the age of coal and steam power, going direct into manufacturing of products based on electrical and internal combustion technol...

The housing bubble is essentially a land price bubble, since the value of buildings is relatively constant and depends on construction costs. The purchase of a piece of land is the purchase of the future rental income stream, which is the value of the advantages of the particular location. From this point of view, it is in principle much like the purchase of an annuity. if that were all there was to it, land prices would settle at a level such that the ratio between rental value and the the land price was much the same as the general interest rate, which is usually around 5%. There would be no cyclic bubbles. But rental values have a tendency to rise, and so the expectation of future rentals is factored in to land prices. Thus yields from land tend to be lower than yields from other investments. At the bottom of an economic cycle expectations are low. But as the economy pulls out of recession, expectations of rental income growth start to rise and land prices with them, as could be see...

The Monetary Policy Committee's decision to drop the interest rate to 5% will give another shove to inflation, as the £ drops further in the foreign exchange markets. The £ stood at over €1.40 less than a year ago. Now it is down to €1.25 in a slide which has mostly occurred in the past four months and looks set to continue. It is a desperate attempt to keep the property bubble inflated, in order to keep the credit-fuelled consumer boom running. As the most, it will put off the collapse for a little while, but the decision means that the UK will probably suffer 1970s levels in addition to the inevitable recession. The immorality of the policy is that the burden will now be pushed onto the thrifty and prudent people who had no part in bringing about this state of affairs and gained nothing from it. A few firms will benefit from the export opportunities but the main effect will be inflationary, so expect industrial trouble as people find the real value of their pay packets shrinking....

Marxism was discredited by the end of the 1980s. The so-called ”Capitalist system” seems as if it will not outlast its former rival by more than twenty years or so. It is interesting how those who were arguing hardest for leaving things to the market have mostly gone silent in the face of desperate attempts by the US and British governments to prop up the private banking system now that it has gone to the bad. How long will it take for the realisation to dawn that neither system works in people’s interests? And what happens after that?

One concern that is surfacing as a result of the credit crisis is that growth will slow. I have always wondered what it was that we were going to grow into? The reality seems to be more pollution, more waste, and an increase in traffic to the point that it is difficult to walk round many towns, so clogged with cars have the streets become. By “growth” is meant the Gross National Product, a figure which has replaced the balance of payements as the target to which government economic policy is aligned. But GNP has nothing whatsoever to do with people’s well being; indeed, the opposite is true, as it encourages policies which lead to all sorts of developments which damage the environment and lead to a decline in real wealth. Unfortunately, good environments do not carry a price tag that is measured by the statistics, and so it is deemed to be of no value and ignored, or fought over by what are seen as marginal pressure groups. In reality, people do put a price tag on the environment: it i...

Politicians, journalists and other experts have go on for the last dozen years about the need for “affordable housing”; in other words, they think housing is too expensive. Now there is another need – to support house prices to prevent a collapse. Often, the same individuals are arguing for both things at the same time. Obviously this just isn’t possible, so why do they do it? But why is there this anxiety to keep house prices up? Now, the talk in the newspapers is about the need to drop interest rates in order to prop up the present inflated house prices – really, the price of the land that houses stand on. To put it more bluntly, they do not want to see the present land price bubble deflating. I thought the terms of reference of the Monetary Policy Committee were to contain inflation within set limits, not to keep speculative bubbles pumped up, but the economy, we are told, depends on it? How so? The house price bubble has helped to boost demand by enabling people to run up debts by ...

I came across a nasty antisemitic video about usury recently, claiming at it was all because of the Jews and blaming them for causing the present economic troubles. It included a list of major banks which it claimed were mostly run by Jews. The churches used to inveigh against usury but seem to have forgotten its significance. But the market in money is like a market in anything else, and if it is in short supply then people will pay to borrow it. There is something else going on underneath which creates the environment in which usury can flourish. If the conditions are present, then the thing will happen. Somebody will inevitably cash in on the opportunity. The most important condition for usury is, I would suggest, the monopolisation of land through land enclosure, combined with the failure on the part of governments to collect the rent of land as public revenue. This causes the stock of money to flow towards landowners. It’s no use blaming any particular group of people. Even if the...

This is a translation of the blog below, which applies to tax and welfare systems around the world. The Swedish welfare system is under threat because tax levels are already too high and it is becoming increasingly difficult to fund. It is a good system, but a costly one. Many people cannot earn as much as they receive in benefit. People who work may end up worse off. Every year the cost to the government goes on rising. If people on benefit go to work, they can end up worse off. Why work, they ask themselves? They should not be blamed if they will not work. It is said that 20% of Swedes are out of work, but the official figure is only 5%. It is the same in the UK. Many people on sickness benefit could work. Some people who receive benefit work at the same time. Fraudulently. They do jobs like painting, carpentry, cleaning, and so on. Or sell drugs. Or go in for crime. The government tries to prevent the fraud but it is an impossible task. There are bigger swindles that are legal. And...

Sveriges välfärdssamhället hotas därför att skatterna redan är för höga och pengarna räcker inte. Systemet är bra men det kostar för mycket. Många personer kan inte tjäna så mycket som de får a-kassa. Varje år kostar det regeringen mer. Om de arbetslösa arbetar, blir de ofta fattigare. Varför arbeta, frågar de? Man kan inte lägga skulden på dem om de inte vill arbeta. De lär vara så att 20% av svenskarna är arbetslösa men enligt regeringen är det bara 5%. I Storbritannien också. Det finns många som är sjuka men kan arbeta. Och många som får a-kassa och arbetar också. De fuskar. De arbetar som målare eller snickare, städerskor och så vidare. Eller säljer knark. Eller går in för brott. Regeringen försöker att hindra fusket men verkligen är det omöjligt. Det finns större fusk men det är legalt. Och större brott, till exempel finansiell brott som polisen knappt kan förstå. I Tyskland skickar rika människor sina pengar till Lichtenstein för att slippa skatt. I Storbritannien skickar man pen...

Destination: Bank of England , originally uploaded by canadian pacific . The Monetary Policy Committee is primarily charged with the task of keeping inflation within strict limits. It has done this by adjusting interest rates. In fact, that is all it can do. This apparently worked well until recently because the economic climate was benign. I say "apparently" because house prices have been rising way beyond the rate of inflation, fuelled by easy lending to people whose ability to repay their loans has not always been all that solid. Eventually and inevitably the bubble burst and now the system is being put to the test. If the interest rate is reduced this week it will cause the UK pound to continue to weaken, which will bring further inflation in its wake. If the MPC puts it up, this will help to contain inflation but accelerate the recessionary trend. Whatever the MPC does will be wrong. What can one conclude? That interest rates alone are not an effective means of reg...

In support of the proposed programme of new nuclear power stations is the claim that it will create 100,000 new jobs. Now there are all sorts of reasons why the UK should, or possibly should not, go ahead with building new nuclear power stations, but job creation is not one of them. The an argument is often used in support of new projects of all sorts. People need to be able to earn a livelihood for themselves and their families. But you and I normally seek to get what we need with the minimum of effort. Work is something that represents energy expended - time and energy consumed. It could be argued that, for instance, an oil spill creates jobs for those who have to clear it up. This is obviously nonsensensical, but it is the same job creation argument based on the same logic. And so when politicians claiming that some project will create jobs, it should be remembered that these are human resources consumed. Beware of the argument. Underneath it is the false "lump of labour" ...

The Chancellor's decision to abolish the 10p tax band has provoked a rearguard action from MPs who have noticed that the changes will leave people on low earnings paying more. Their criticism, while justified, is missing the point. Income tax is a bad way to raise public revenue. Apart from being expensive and vulnerable to avoidance and evasion, it involves collecting information about individuals and their families and is an invasion of a fundamental right to privacy. Built into the system are perverse incentives, since it is effectively a fine on employing people to do work, because it forms part of the cost of employment. It was never intended to be the principal source of government revenue and thresholds were once high enough to ensure that only those with high incomes were liable for the tax. But because those thresholds were not increased to take account of inflation, even the poorest eventually became liable for income tax, which thus forms part of the so-called poverty tr...

Missing link , originally uploaded by seadipper . This is Ford, Sussex, the site of one of the proposed new towns. It lies at the junction between the railway lines from Brighton to Portsmouth and from Horsham to Littlehampton; the view is looking roughly to the north-east. The dotted red line is the missing link which would allow trains to go from Brighton to Horsham without going into Littlehampton and reversing, which would be useful when the main London to Brighton line is closed for engineering works. To the left is the River Arun, which is tidal at this point. The site obviously well provided with rail connections and it is also close to the A27 coast road. But it is low-lying and on a flood plain. However, as long as the liability to flooding is taken into account in the design, it could be an exciting new development, perhaps with canals and other water areas both ornamental, recreational and with moorings for boats. But it will not work if it is filled up with affordabl...

This morning's news was full of indignation about the fat cats who have taken action to avoid the increases in Capital Gains Tax, which start with the new financial year after 5 April. But if people have worked hard and built up the value of their businesses, what right does the government have to any of the fruits of their hard work? No right at all, I would suggest. If, on the other hand, the increased value is primarily an increase in the land value element of their business assets, then that growth has come about not through any effort by the entrepreneur but through the presence and activities of the community. By rights, that value does indeed belong to the community that has created it. However, without a competent system of land value taxation in place, that unearned value stays with the owner, leaving the government short of funds, and because politicians and their advisors seem unable to understand what is going on here, they resort to grabbing the products of people'...

The newspapers today are full of talk about negative equity. But interestingly, there was a warning of a major house price fall in 2003. Writing in The Guardian in February 2003, we read that "Andrew Oswald, professor of economics specialising in the housing market at Warwick University, has predicted that negative equity will start in London and spread out across the country, just as the boom in house prices started in the capital and eventually reached the provinces... "Prof Oswald has said he expects house prices to fall by 30% between the middle of this year and the end of 2005. This would leave at least 500,000 people with negative equity." He was right in principle, but as we now know, the boom had four more years to run, which seems to give credence to the notion of an 18 year cycle. Whether there is any truth in that is another matter, but the bust will be far deeper than it would have been had the collapse occurred in 2005. Yet until less than a year ago most ...

The property industry is making a final attempt to get the government to abandon the tax on empty commercial buildings, claiming it could prevent development and lead to urban wastelands. The tax, which begins today, will force owners to pay business rates on unoccupied buildings. The threatened "constructive vandalism" would lead to a repeat of the de-roofing epidemic which occurred during the last recession. Whether property owners would get away with it this time is another matter, because of the recent anti-tax-avoidance legislation, which, logically, constructive vandalism should fall foul of. We shall see. The British Property Federation has issued a statement which, strangely, claims that properties are empty because there is no demand for them at a particular time or place... extra tax burdens will do nothing to change that. One must hope that nobody will be fooled. Unless the location is sub-marginal there is ALWAYS a price at which a property can be let to a tenant....

We shall soon be celebrating eleven years of New Labour. There was a long honeymoon period as the government was seen as a huge improvement on the sleazy old Conservatives. And being on the upwards side of the economic cycle, it looked as if Labour's policies were doing a good job, a success which Labour was not slow to claim as its own. And so, without any checks put in place to deal with it, the cycle moved on to its path of boom-to-bust, the point we have now reached, pretty much on schedule. Is the government to blame? Had there been a Conservative or Liberal Democrat government in power, things would have turned out much the same. Moreover, any measures to prevent the boom-and-bust would have had to be put in place by 2003. When Labour was elected, Gordon Brown became Chancellor of the Exchequer, and followed policies framed by his advisor, Ed Balls. Those policies, and the assumptions underlying them, were set out by Ed Balls in an article published in the Observer around 199...

It is tempting to blame the banking crisis on the regulators. But no amount of regulation can contain forces that encourage people to lend money to people who cannot afford to pay it back, on the security of bubble values that have been largely created by the same free lending policy. Regulation would be skirted round, somehow or other.

New England development , originally uploaded by seadipper . Some people, including most commentators, seem to be under the impression that the present difficulties, that began with Northern Rock, will soon be resolved and things will be on the up again. I suggest not. The recession will go on for at least another two or three years and is set to get much worse before it starts to get better. House prices - in reality, land prices - have hugely overshot, due to the over-free lending policy which has allowed people to borrow far more than they can really afford, and in doing so fuel a boom which is nothing more than a bubble. The tightening of lending conditions means, firstly, that houses new and old will be more difficult to sell. Then there will be a reduction in construction activity as the housebuilders cut down on new starts, and people will find it harder to get work. And because most refurbishment and re-furnishing occurs when houses have just been bought, there will be a...